Question

1a.Discuss the various methods governments use to impose exchange controls on multinational companies?

1b. Discuss four ways multinational companies can overcome these exchange controls?

Answer 1

The government may adopt the policy of differentiation by exercising exchange control. If the government may allow international trade with some countries by releasing the required foreign currency the government may restrict the trade import and export with some other countries by not releasing the foreign currency.

Objective behind imposing the exchange control-:

A) For correcting balance of payments- The main purpose of exchange control is to restore the balance of payments equilibrium by allowing the inports only when they are necessary in the interest of the country and thus limiting the demands for foreign exchange upto tha available resources.

B)To protect domestic industries-The government in order to protect domestic trade and Industries from foreign competition resort to exchange control.

C) To maintain an overvalued rate of exchange-It is principal object of exchange control. When government feel that rate of exchange is not at a specific level, it intervenes in maintaining the rate of exchange at that level.

Four ways MNC can overcome these exchange control,:

- Selling goods and services to subsidiary

-Charging a royalty on goods sold by subsidiary

-interest rate manipulation

- management charges